Alberto Lamadrid - Lessons Learned from the Texas Energy Grid Failure

In this episode of Lehigh University’s College of Business IlLUminate podcast, we are speaking with Alberto Lamadrid about the recent massive failure of the Texas electrical grid and what lessons we should learn from it.

Dr. Lamadrid holds the Class of '61 professorship in economics and is principal investigator on an interdisciplinary faculty team at Lehigh University's Institute for Cyber Physical Infrastructure and Energy that, last year, was awarded $2.5 million in funding by the Advanced Research Projects Agency - Energy, of the U.S. Department of Energy. The funding supports the development of a framework and platform for asset and system risk management that can be incorporated into current electricity system operations to improve economic efficiency.

He spoke with Jack Croft, host of the ilLUminate podcast. Listen to the podcast here and subscribe and download Lehigh Business on Apple Podcasts or wherever you get your podcasts.

Below is an edited excerpt from that conversation. Read the complete podcast transcript. 

Jack Croft: The massive power outages that occurred in Texas in mid-February left millions of homes and businesses without heat, electricity, and water for several days. And the death toll related to the harsh winter storms and the outages they caused are still being calculated. What convergence of factors caused such a large-scale failure of the Texas electrical grid?

Alberto Lamadrid: There were a number of events that actually happened and created this sequence of cascading failures that occurred in Texas. You can call this relatively high-impact, low-probability events. But if we want to start from the very beginning, the triggering event was the fact that there were very low temperatures, beyond expectations, and that they were set for a sustained period of time.

This created another set of dominoes falling, like the first one that I would say, is that the electricity system has very limited response in terms of the demand, OK? So what happens is that, even if … the temperatures are very low and people are going to be requiring more power in order to, for example, heat their houses, … they don't have too much visibility about what is happening at the system level. In that sense, a lot of people may be putting their thermostats at a level that is comfortable. And you could think that when you start adding all of that demand, you may end up with a much higher level than you would have if you were … in normal situations. If, for example, each one of the individual households dialed back, just a little bit, the temperature. Let's say they, instead of putting it at 75 Fahrenheit, they put it at 60 Fahrenheit, and that was done over a generalized number of areas-- like many cities-- that could have helped prevent the situation. But because the demand is not very responsive-- or because of the design, households and different consumers didn't have access to this information.

Second, there were a number of outages on the supply side. So what happens with Texas is there is a system that is relying, still, very much on natural gas, and a lot of the infrastructure is not winterized. So what occurs is that imagine, for example, you're going to be a natural gas plant that is going to be generating, but you're not going to be having enough gas coming in mostly because, by regulation, this gas is prioritized for human purposes. So you send that gasoline-- we use gas for both heating our houses and for generating electricity-- you send gas to households or to centers that actually need it in order to start heating.

But then you end up with a lot of households that may not have the gas heating; they are going to be using electricity heating. Generators, actually, are not going to be having access to that natural gas, and therefore, they're not going to be able to produce. So that was one of the parts. There is also a lot of publicity regarding failures happening, wind energy. And that occurred—in fact, wind blades were not able to produce. There were even outages in terms of our nuclear plants, which are what we call base loads in the sense that they are relatively reliable. But because of these conditions, there was a lot of freezing water that could not be used in order to start cooling the nuclear reactors, and therefore, some portion of the supply went out. So that would be a second reason, the supply side. It was also under a lot of stress.

The third one is, in general, all of these design interactions that are occurring—like I mentioned already, the fact that the natural gas is prioritized for certain events. There were a number of other things that occurred, like, for example, there's going to be a spike in prices. And this, in certain cases, is going to be leaving some generators unable to keep up with those situations. And there's going to be a number of other [examples]. Texas has been increasing in population during the last decades. And, historically, the way that they knew a stock of houses was being developed was using much more electric heating. So because of that, in many cases, they were using a lot of electricity. In many cases, these new houses, because they are rarely exposed to these kinds of situations, they were not completely insulated. They were not properly insulated for these kinds of conditions. And, therefore, people sometimes, since they don't have the heating, they start using, let's say, the oven. They open the door of the oven, and that creates even further demand. So the accident or the way that these assets-- again, no assets were entering into the system, creates these number of events.

Croft: I mentioned the ARPA-E U.S. Department of Energy grant that the university's Institute for Cyber Physical Infrastructure and Energy got to develop a framework and platform for asset and system risk management that could be incorporated into the current electricity system operations to improve economic efficiency. And clearly, we're seeing the need for more economic efficiency in the system. So could you talk just a little about the grant: who you're working with at the university and what it is that you're hoping to develop?

Lamadrid: Overall, as you said, I think that this grant was coming out of the need to improve the risk management in the system. Overall, the system, it is amazing how well has it held, in general, given the fact that it has changed a lot during the last 20 years. So when these markets were originally developed, they were not thinking that we were going to be having that much renewable energy. Because of that, a lot of the design features are based on suppliers that we can control, right?

But the moment that we start using much more renewable energy-- as you know, we're going to be producing with wind energy-- nobody has to pay for the wind. So there's no cost associated to that. But we don't know whether it is going to be as windy as our models predicted. Because of that, we ended up in a situation in which we're using market designs that were based on more controllable generation, but our portfolio generation has changed significantly.

So this is a collaborative effort with our colleagues in electrical engineering. My two colleagues are Shalinee Kishore (Iacocca Chair Professor of electrical and computer engineering and  Associate Director, Institute for Cyber Physical Infrastructure & Energy) and Parv Venkitasubramaniam (associate professor of electrical and computer engineering). And this is a multi-institutional effort. Besides Lehigh, we have people from MIT, and we have two national labs, which are part of the Department of Energy: Argonne National Lab and Lawrence Livermore National Lab. And our objective is to start coming up with better ways to handle the risks, using tools from finance, using tools from banking that allow to hedge these kinds of risk. Now, overall, the fact that we're going to be using much more renewable energy sources, which are intermittent, means that we're going to be dealing with overall risk every single day. In normal operation, even without these kinds of extreme events, … day to day, we're going to be dealing with much more intermittency.

So we're going to be looking at the mechanisms in order to handle the risks during those normal conditions. And when I say, "normal," quote/unquote, in the sense that this is something that is going to be closer to the center of the probability distribution. But then, also, we want to have risk management for those daily events like the ones that are going to be rarer that may be happening once every 10 years or every 20 years. The methodologies, in certain cases, could be similar. We adapt them in order to make sure that actually they're reflective of the overall operation of the system. But I think there's a lot that we can learn over here.

I typically say that whenever we're thinking about these large infrastructure systems, we're thinking about three parts. One is economics, like all of these market designs, "How do we adapt them to the changing conditions, changing portfolios, and changing priorities in order to decarbonize and do a transition to a low-carbon economy?"

Second is technological. There may be some technological fixes, more availability of storage, for example, more HVDC lines, like high-voltage DC lines that allow us to interconnect. There may be other forms of storage, for example, if you have a surplus of renewable energy in the middle of the night when nobody's using it, you're going to start producing other kind of energy storage forms, like, for example, producing hydrogen and storing it, or using thermal storage and then using that for air conditioning services and for heating services.

And the last thing, besides the technology is going to be all of these institutional arrangements. Like, "How are we going to be dealing with the risks?" I mentioned to you that Texas is fiercely independent, and a lot of the institutions that have developed are representative of those kind of preferences, like social preferences. So in that sense, we should see if there is maybe some regulation that is going to be entering.

For example, I've seen lately a lot of push for more winterization. There are wind farms that are operating in much worse environments than the ones that we have here, that we saw in Texas, in particular. There's going to be a difficulty in the sense that there's big swings that happen there in temperature in a very short period of time. So there's still going to be some regulation part and some technological part. But that's part of what we're working on, that you try to bring tools that could be key, having a real impact in the short-term in terms of this risk management in electricity systems, taking into account those three aspects.

And the fourth leg of this stool — making sure that there's affordability. There is no reason why we cannot design systems of these mechanisms in order to make sure that actually we, for example, cover populations that we want, that we consider that they need some protections or that we provide people some choice in order to decide, "OK, if you enter into these kind of contracts, how are you going to be hedged?" Because, at some point, there may be a little bit of moral hazard in the sense that some people may sign up for some contracts that they don't fully understand, and may expect to be bailed out, or some people may actually not even expect to be bailed out, but they never even foresee this kind of situation.

So we need to start coming up with better ways in passing this information through, making sure that people understand what they're signing up for, and that entities like this — this is not a failure of households. This is actually a failure of the design at the wholesale level. These load serving entities, they should have been better protected. Sometimes because it's a utility, it gets passed to the government. So there you go, with the systemic risk that we're going to be facing. But that's part of what we are trying to solve here.